Harvard Bioscience(HBIO)

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Harvard Bioscience(HBIO) - 2019 Q3 - Quarterly Report
2019-11-08 22:14
UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q ☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2019 ☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission file number 001-33957 HARVARD BIOSCIENCE, INC. (Exact Name of Registrant as Specified in Its Charter) Delaware 04-3306140 (State or Other Jurisdiction of In ...
Harvard Bioscience(HBIO) - 2019 Q2 - Quarterly Report
2019-08-08 21:16
[PART I - FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Presents unaudited consolidated financial statements for Q2 and H1 2019, covering balance sheets, operations, equity, and cash flows, with detailed notes [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets%20as%20of%20June%2030%2C%202019%20and%20December%2031%2C%202018%20(unaudited)) Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total Assets | $166,238 | $168,613 | | Total Liabilities | $85,908 | $85,889 | | Total Stockholders' Equity | $80,330 | $82,724 | | Cash and cash equivalents | $4,934 | $8,173 | | Total current assets | $52,493 | $57,832 | | Total current liabilities | $20,861 | $25,489 | | Long-term debt, less current installments | $52,414 | $54,813 | [Consolidated Statements of Operations and Comprehensive Income (Loss)](index=5&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20(Loss)%20for%20the%20Three%20and%20Six%20Months%20Ended%20June%2030%2C%202019%20and%202018%20(unaudited)) Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $29,584 | $31,522 | $57,786 | $58,281 | | Gross profit | $15,955 | $15,355 | $32,109 | $28,624 | | Operating income (loss) | $228 | $(382) | $108 | $(1,648) | | Net loss | $(247) | $(1,464) | $(2,617) | $(5,528) | | Basic loss per common share | $(0.01) | $(0.04) | $(0.07) | $(0.15) | | Diluted loss per common share | $(0.01) | $(0.04) | $(0.07) | $(0.15) | [Consolidated Statement of Stockholders' Equity (Three Months)](index=7&type=section&id=Consolidated%20Statement%20of%20Stockholders'%20Equity%20for%20the%20Three%20Months%20Ended%20June%2030%2C%202019%20and%202018%20(unaudited)) Stockholders' Equity Changes (Three Months Ended June 30, 2019 vs. 2018, in thousands) | Metric | June 30, 2019 | June 30, 2018 | | :--- | :--- | :--- | | Total Stockholders' Equity (End of Period) | $80,330 | $77,012 | | Net loss | $(247) | $(1,464) | | Stock compensation expense | $615 | $734 | | Other comprehensive loss | $(474) | $(2,713) | [Consolidated Statement of Stockholders' Equity (Six Months)](index=8&type=section&id=Consolidated%20Statement%20of%20Stockholders'%20Equity%20for%20the%20Six%20Months%20Ended%20June%2030%2C%202019%20and%202018%20(unaudited)) Stockholders' Equity Changes (Six Months Ended June 30, 2019 vs. 2018, in thousands) | Metric | June 30, 2019 | June 30, 2018 | | :--- | :--- | :--- | | Total Stockholders' Equity (End of Period) | $80,330 | $77,012 | | Net loss | $(2,617) | $(5,528) | | Stock compensation expense | $1,206 | $1,746 | | Other comprehensive loss | $(649) | $(1,486) | [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20Six%20Months%20Ended%20June%2030%2C%202019%20and%202018%20(unaudited)) Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30, in thousands) | Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $2,667 | $1,725 | | Net cash provided by (used in) investing activities | $588 | $(52,912) | | Net cash (used in) provided by financing activities | $(6,537) | $50,705 | | Decrease in cash and cash equivalents | $(3,239) | $(109) | | Cash and cash equivalents at end of period | $4,934 | $5,624 | [Notes to Unaudited Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) [Note 1. Basis of Presentation and Summary of Significant Accounting Policies](index=10&type=section&id=1.%20Basis%20of%20Presentation%20and%20Summary%20of%20Significant%20Accounting%20Policies) - The unaudited consolidated financial statements adhere to SEC rules and U.S. GAAP, with all necessary adjustments for fair presentation[28](index=28&type=chunk)[29](index=29&type=chunk) - An immaterial **$4.0 million** misclassification in current vs. long-term debt was corrected for December 31, 2018, without impacting total reported debt[30](index=30&type=chunk) - Denville Scientific, Inc.'s operating results, sold in January 2018, are presented as discontinued operations due to its strategic impact[31](index=31&type=chunk) - The Company adopted ASC 842 Leases on January 1, 2019, recognizing operating lease ROU assets and liabilities for leases exceeding 12 months[33](index=33&type=chunk)[34](index=34&type=chunk) [Note 2. Recently Issued Accounting Pronouncements](index=11&type=section&id=2.%20Recently%20Issued%20Accounting%20Pronouncements) - The Company is assessing ASU No. 2016-13 (Credit Losses), effective after December 15, 2019, which will significantly impact allowance for doubtful accounts[37](index=37&type=chunk) - ASU No. 2018-14 (Defined Benefit Plans) and ASU No. 2019-04 (Derivatives and Hedging) are under assessment, with effective dates after December 15, 2020, and January 1, 2020, respectively[38](index=38&type=chunk)[39](index=39&type=chunk) - ASU No. 2017-12 (Derivatives and Hedging) was adopted on January 1, 2019, with no material financial impact[40](index=40&type=chunk) - ASC 842 (Leases) adoption on January 1, 2019, led to recognizing **$11.7 million** in operating lease liabilities and **$9.4 million** in right-of-use assets[42](index=42&type=chunk) [Note 3. Accumulated Other Comprehensive Loss](index=13&type=section&id=3.%20Accumulated%20Other%20Comprehensive%20Loss) Changes in Accumulated Other Comprehensive Loss (in thousands) | Component | Balance at Dec 31, 2018 | Other comprehensive income (loss) before reclassifications | Amounts reclassified from AOCI | Balance at June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Foreign currency translation adjustments | $(12,630) | $(191) | - | $(12,821) | | Derivatives qualifying as hedges | $(170) | $(494) | $36 | $(628) | | Defined benefit pension plans | $(732) | - | - | $(732) | | **Total** | **$(13,532)** | **$(685)** | **$36** | **$(14,181)** | [Note 4. Acquisition](index=13&type=section&id=4.%20Acquisition) - On January 31, 2018, the Company acquired DSI for approximately **$71.1 million**, expanding into biopharmaceutical and contract research organization markets[44](index=44&type=chunk)[45](index=45&type=chunk) DSI Acquisition Purchase Price Allocation (in thousands) | Asset/Liability | Amount | | :--- | :--- | | Tangible assets | $34,010 | | Liabilities assumed | $(11,949) | | Goodwill | $21,865 | | Amortizable intangible assets | $40,318 | | Deferred tax liabilities, net | $(13,120) | | **Total Acquisition Purchase Price** | **$71,124** | - DSI contributed approximately **$18.2 million** in revenues and a net loss of **$1.7 million** from acquisition to June 30, 2018, including a **$3.7 million** inventory fair value step-up charge[47](index=47&type=chunk) [Note 5. Discontinued Operations](index=15&type=section&id=5.%20Discontinued%20Operations) - On January 22, 2018, Denville Scientific, Inc. was sold for approximately **$20.0 million**, including a **$3.0 million** earn-out provision, of which **$2.0 million** for 2018 was not earned[50](index=50&type=chunk) Income from Discontinued Operations (in thousands) | Metric | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | | Revenues | $- | $893 | | Income from discontinued operations before income taxes | $24 | $937 | | Income tax benefit | $(10) | $(883) | | **Income from discontinued operations** | **$34** | **$1,820** | - During Q2 2019, the Company received a **$1.0 million** escrow release from the Denville Transaction, recorded in investing cash flows[52](index=52&type=chunk) [Note 6. Goodwill and Other Intangible Assets](index=16&type=section&id=6.%20Goodwill%20and%20Other%20Intangible%20Assets) Intangible Assets (in thousands) | Asset Type | June 30, 2019 (Net) | December 31, 2018 (Net) | | :--- | :--- | :--- | | Amortizable intangible assets | $40,670 | $44,532 | | Goodwill | $57,239 | $57,304 | | Other indefinite-lived intangible assets | $1,230 | $1,232 | | **Total intangible assets, gross** | **$130,743** | **$131,887** | - Goodwill decreased by **$65 thousand** due to currency translation effects for the six months ended June 30, 2019[55](index=55&type=chunk) - Amortization expense was **$1.4 million** for Q2 2019 and **$2.9 million** for H1 2019, with a **$0.9 million** impairment charge for in-process R&D intangible assets in Q2 2019[55](index=55&type=chunk)[56](index=56&type=chunk) [Note 7. Inventories](index=16&type=section&id=7.%20Inventories) Inventories (in thousands) | Category | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Finished goods | $6,729 | $6,936 | | Work in process | $4,101 | $3,667 | | Raw materials | $14,458 | $14,484 | | **Total** | **$25,288** | **$25,087** | [Note 8. Property, Plant and Equipment](index=17&type=section&id=8.%20Property%2C%20Plant%20and%20Equipment) Property, Plant and Equipment, Net (in thousands) | Category | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Land, buildings and leasehold improvements | $2,527 | $2,468 | | Machinery and equipment | $9,914 | $9,678 | | Computer equipment and software | $9,814 | $9,685 | | Furniture and fixtures | $1,406 | $1,390 | | Automobiles | $114 | $115 | | Less: accumulated depreciation | $(18,416) | $(17,438) | | **Property, plant and equipment, net** | **$5,359** | **$5,898** | [Note 9. Related Party Transactions](index=17&type=section&id=9.%20Related%20Party%20Transactions) - The Company made rent payments of approximately **$89 thousand** and **$178 thousand** to former owners of acquired companies for Q2 and H1 2019, respectively[59](index=59&type=chunk) [Note 10. Warranties](index=17&type=section&id=10.%20Warranties) Product Warranty Accrual Rollforward (in thousands) | Period | Beginning Balance | (Payments)/Credits | Additions | Ending Balance | | :--- | :--- | :--- | :--- | :--- | | Year ended Dec 31, 2018 | $246 | $(37) | $182 | $391 | | Six months ended June 30, 2019 | $391 | $(79) | $6 | $318 | [Note 11. Employee Benefit Plans](index=17&type=section&id=11.%20Employee%20Benefit%20Plans) Defined Benefit Pension Expense (in thousands) | Component | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Interest cost | $123 | $118 | $255 | $250 | | Expected return on plan assets | $(170) | $(184) | $(352) | $(388) | | Net amortization loss | $71 | $52 | $147 | $110 | | **Net periodic benefit cost (income)** | **$24** | **$(14)** | **$50** | **$(28)** | - The Company contributed **$0.4 million** to its defined benefit pension plans for H1 2019 and 2018, with an expected **$0.3 million** contribution for the rest of 2019[62](index=62&type=chunk) - An underfunded pension liability of approximately **$0.9 million** was reported as of June 30, 2019, and December 31, 2018[63](index=63&type=chunk) [Note 12. Leases](index=18&type=section&id=12.%20Leases) - Upon adopting ASC 842 on January 1, 2019, the Company recognized **$9.4 million** in right-of-use assets and **$11.7 million** in operating lease liabilities[64](index=64&type=chunk) Lease Expense and Liabilities (in thousands) | Metric | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Total lease cost | $463 | $960 | | Operating lease right-of-use assets (June 30, 2019) | N/A | $8,846 | | Total operating lease liabilities (June 30, 2019) | N/A | $11,009 | | Weighted average remaining lease term (June 30, 2019) | N/A | 8.5 years | | Weighted average discount rate (June 30, 2019) | N/A | 9.2% | Future Minimum Lease Payments for Operating Leases (in thousands) | Year | Amount | | :--- | :--- | | 2020 | $2,295 | | 2021 | $2,108 | | 2022 | $1,852 | | 2023 | $1,804 | | 2024 | $1,798 | | Thereafter | $6,543 | | **Total lease payments** | **$16,400** | | Less interest | $(5,391) | | **Total operating lease liabilities** | **$11,009** | [Note 13. Capital Stock](index=19&type=section&id=13.%20Capital%20Stock) - As of June 30, 2019, the Company had **37.9 million** shares of common stock issued and outstanding, with **80.0 million** shares authorized[67](index=67&type=chunk) - Under the ESPP, **93,785** shares were issued in H1 2019, enabling employees to purchase shares at **85%** of the lower fair market value at period start or end[69](index=69&type=chunk) - Stock-based compensation expense was **$0.6 million** for Q2 2019 and **$1.2 million** for H1 2019, a decrease from prior periods[124](index=124&type=chunk)[76](index=76&type=chunk) Weighted Average Common Shares for EPS Calculation | Period | Basic | Diluted | | :--- | :--- | :--- | | Three Months Ended June 30, 2019 | 37,735,717 | 37,735,717 | | Three Months Ended June 30, 2018 | 36,082,258 | 36,082,258 | | Six Months Ended June 30, 2019 | 37,682,539 | 37,682,539 | | Six Months Ended June 30, 2018 | 35,774,334 | 35,774,334 | [Note 14. Long Term Debt](index=22&type=section&id=14.%20Long%20Term%20Debt) - On January 31, 2018, a new Financing Agreement provided a **$64.0 million** term loan and a **$25.0 million** revolving line of credit for the DSI acquisition and general corporate needs[79](index=79&type=chunk)[80](index=80&type=chunk) - Term loans amortize quarterly with mandatory 'excess cash flow sweep' prepayments; the Company made a **$4.0 million** excess cash flow payment and a **$1.0 million** Denville escrow payment in Q1/Q2 2019[81](index=81&type=chunk)[168](index=168&type=chunk) - As of June 30, 2019, total borrowings were **$54.8 million** (net), with **$9.5 million** available capacity and a **8.85%** weighted effective interest rate on the term loan[84](index=84&type=chunk)[85](index=85&type=chunk)[172](index=172&type=chunk)[173](index=173&type=chunk) Long-Term Debt (in thousands) | Metric | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Term loan | $56,197 | $62,400 | | Total unamortized deferred financing costs | $(1,376) | $(1,605) | | **Total debt** | **$54,821** | **$60,795** | | Less: current installments | $(2,800) | $(6,383) | | Current unamortized deferred financing costs | $393 | $401 | | **Long-term debt** | **$52,414** | **$54,813** | [Note 15. Derivatives](index=23&type=section&id=15.%20Derivatives) - The Company uses LIBOR-based interest rate swap agreements to manage variable-rate debt exposure, converting variable cash flows to fixed cash flows[87](index=87&type=chunk)[91](index=91&type=chunk) - An interest rate swap with a **$36.0 million** notional amount and January 1, 2023, termination date hedges a portion of the term loan, fixing the LIBOR rate at **2.72%**[92](index=92&type=chunk) Derivative Instruments Notional Amount and Fair Value (in thousands) | Instrument | June 30, 2019 Notional Amount | June 30, 2019 Fair Value | Dec 31, 2018 Notional Amount | Dec 31, 2018 Fair Value | | :--- | :--- | :--- | :--- | :--- | | Interest rate swaps | $31,591 | $(628) | $34,090 | $(170) | Effect of Derivatives on Comprehensive Loss (in thousands) | Period | Gain (Loss) recognized in OCI (effective portion) | | :--- | :--- | | Three Months Ended June 30, 2019 | $(298) | | Three Months Ended June 30, 2018 | $155 | | Six Months Ended June 30, 2019 | $(494) | | Six Months Ended June 30, 2018 | $(99) | [Note 16. Fair Value Measurements](index=25&type=section&id=16.%20Fair%20Value%20Measurements) - Fair value measurements are categorized into a three-level hierarchy: Level 1 (quoted prices), Level 2 (observable inputs), and Level 3 (unobservable inputs)[96](index=96&type=chunk)[97](index=97&type=chunk) Fair Value Hierarchy for Interest Rate Swap Agreements (in thousands) | Date | Level 1 | Level 2 | Level 3 | Total | | :--- | :--- | :--- | :--- | :--- | | June 30, 2019 | $- | $(628) | $- | $(628) | | December 31, 2018 | $- | $(170) | $- | $(170) | - The Company's interest rate swap agreements are valued using the market approach, based on LIBOR yield curves, and are classified as Level 2[97](index=97&type=chunk) [Note 17. Revenues](index=26&type=section&id=17.%20Revenues) Revenues by Geographic Area and Product Type (Three Months Ended June 30, in thousands) | Category | United States | United Kingdom | Germany | Rest of the world | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | **2019** | | | | | | | Instruments, equipment, software and accessories | $20,920 | $2,399 | $3,271 | $1,753 | $28,343 | | Service, maintenance and warranty contracts | $910 | $236 | $79 | $16 | $1,241 | | **Total revenues** | **$21,830** | **$2,635** | **$3,350** | **$1,769** | **$29,584** | | **2018** | | | | | | | Instruments, equipment, software and accessories | $20,478 | $4,058 | $3,316 | $2,156 | $30,008 | | Service, maintenance and warranty contracts | $1,204 | $168 | $129 | $13 | $1,514 | | **Total revenues** | **$21,682** | **$4,226** | **$3,445** | **$2,169** | **$31,522** | Revenues by Geographic Area and Product Type (Six Months Ended June 30, in thousands) | Category | United States | United Kingdom | Germany | Rest of the world | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | **2019** | | | | | | | Instruments, equipment and accessories | $39,591 | $5,528 | $6,184 | $3,798 | $55,101 | | Service, maintenance and warranty contracts | $2,053 | $426 | $176 | $30 | $2,685 | | **Total revenues** | **$41,644** | **$5,954** | **$6,360** | **$3,828** | **$57,786** | | **2018** | | | | | | | Instruments, equipment and accessories | $36,695 | $7,587 | $7,006 | $4,400 | $55,688 | | Service, maintenance and warranty contracts | $2,030 | $334 | $198 | $31 | $2,593 | | **Total revenues** | **$38,725** | **$7,921** | **$7,204** | **$4,431** | **$58,281** | - Deferred revenue decreased from **$3.8 million** at December 31, 2018, to **$3.5 million** at June 30, 2019, due to recognition partially offset by new deferrals[99](index=99&type=chunk)[101](index=101&type=chunk) [Note 18. Income Tax](index=28&type=section&id=18.%20Income%20Tax) Income Tax from Continuing Operations (in thousands) | Period | Income Tax Benefit (Expense) | Effective Tax Rate | | :--- | :--- | :--- | | Three Months Ended June 30, 2019 | $885 | 78.2% | | Three Months Ended June 30, 2018 | $369 | 19.8% | | Six Months Ended June 30, 2019 | $309 | 10.6% | | Six Months Ended June 30, 2018 | $(236) | (3.3%) | - Effective tax rate differences from the **21%** U.S. statutory rate are due to income/loss mix, foreign tax rates, GILTI rules, interest expense limitations, and non-deductible acquisition costs[105](index=105&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial condition and results for Q2 and H1 2019, covering revenue, expenses, liquidity, and foreign currency [Forward-Looking Statements](index=29&type=section&id=Forward-Looking%20Statements) - The report includes forward-looking statements subject to known and unknown risks and uncertainties that could materially alter actual results[108](index=108&type=chunk) - Key risks include reduced research budgets, global economic conditions, currency fluctuations, competition, IT issues, acquisition integration, substantial debt, and Brexit impact[108](index=108&type=chunk) [Overview](index=30&type=section&id=Overview) - Harvard Bioscience, Inc. is a global provider of scientific instruments, systems, software, and services for life science research, drug discovery, and testing[110](index=110&type=chunk) - In January 2018, the Company acquired DSI for approximately **$71.1 million**, expanding into biopharmaceutical and contract research organization markets with synergy potential[111](index=111&type=chunk) - In January 2018, Denville Scientific, Inc. was sold for approximately **$20.0 million**, including a **$3.0 million** earn-out provision, of which **$2.0 million** for 2018 was not earned[112](index=112&type=chunk) [Components of Operating Income](index=30&type=section&id=Components%20of%20Operating%20Income) - Revenues are generated from selling scientific products and services through various channels, including direct sales and distributors[114](index=114&type=chunk) - For Q2 2019, direct sales comprised approximately **71%** of revenues (up from **58%** in 2018), while distributor sales were **29%** (down from **42%**)[114](index=114&type=chunk)[117](index=117&type=chunk) - Manufactured products accounted for approximately **83%** of Q2 2019 revenues (down from **88%** in 2018), with distributed products at **17%** (up from **12%**)[118](index=118&type=chunk) - Non-United States operations contributed approximately **26%** of Q2 2019 revenues, a decrease from **31%** in 2018[119](index=119&type=chunk) - Cost of revenues includes material, labor, overhead, obsolescence, packaging, warranty, shipping, and royalties, with manufactured products generally having lower cost percentages[119](index=119&type=chunk) - Stock-based compensation expense was **$0.6 million** for Q2 2019 and **$1.2 million** for H1 2019, a decrease from prior periods[124](index=124&type=chunk) [Selected Results of Operations](index=32&type=section&id=Selected%20Results%20of%20Operations) [Three Months Ended June 30, 2019 vs. 2018](index=32&type=section&id=Three%20Months%20Ended%20June%2030%2C%202019%20compared%20to%20Three%20Months%20Ended%20June%2030%2C%202018) Key Financials (Three Months Ended June 30, in thousands) | Metric | 2019 | 2018 | Dollar Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenues | $29,584 | $31,522 | $(1,938) | -6.1% | | Cost of revenues | $13,629 | $16,167 | $(2,538) | -15.7% | | Gross margin percentage | 53.9% | 48.7% | N/A | 10.7% | | Sales and marketing expenses | $5,770 | $6,309 | $(539) | -8.5% | | General and administrative expenses | $4,809 | $5,258 | $(449) | -8.5% | | Research and development expenses | $2,771 | $2,758 | $13 | 0.5% | | Amortization of intangible assets | $1,436 | $1,412 | $24 | 1.7% | | Impairment charges | $941 | $- | $941 | 100.0% | | Other expense, net | $1,360 | $1,485 | $(125) | -8.4% | | Income from discontinued operations | $- | $34 | $(34) | -100.0% | - Revenue decreased by **6.1%** due to lower sales in Europe and with contract resource organizations, partially offset by new DSI product sales, with foreign currency negatively impacting revenues by approximately **$0.5 million**[126](index=126&type=chunk)[127](index=127&type=chunk)[128](index=128&type=chunk) - Gross profit margin increased to **53.9%** from **48.7%**, primarily due to the absence of a **$2.2 million** purchase accounting inventory fair value step-up charge in Q2 2018[130](index=130&type=chunk) - Sales and marketing expenses decreased by **8.5%** due to lower employee and variable sales costs, while general and administrative expenses also decreased by **8.5%** due to lower employee and bad debt expenses[131](index=131&type=chunk)[132](index=132&type=chunk) - A **$0.9 million** impairment charge was recognized for in-process R&D intangible assets in Q2 2019, with no comparable charge in Q2 2018[135](index=135&type=chunk) [Six Months Ended June 30, 2019 vs. 2018](index=35&type=section&id=Six%20Months%20Ended%20June%2030%2C%202019%20compared%20to%20Six%20Months%20Ended%20June%2030%2C%202018) Key Financials (Six Months Ended June 30, in thousands) | Metric | 2019 | 2018 | Dollar Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenues | $57,786 | $58,281 | $(495) | -0.8% | | Cost of revenues | $25,677 | $29,657 | $(3,980) | -13.4% | | Gross margin percentage | 55.6% | 49.1% | N/A | 13.1% | | Sales and marketing expenses | $12,076 | $11,955 | $121 | 1.0% | | General and administrative expenses | $10,612 | $10,642 | $(30) | -0.3% | | Research and development expenses | $5,506 | $5,160 | $346 | 6.7% | | Amortization of intangible assets | $2,866 | $2,515 | $351 | 14.0% | | Impairment charges | $941 | $- | $941 | 100.0% | | Other expense, net | $3,034 | $5,464 | $(2,430) | -44.5% | | Income from discontinued operations | $- | $1,820 | $(1,820) | -100.0% | - Revenue decreased by **0.8%** due to lower sales in Europe and with contract resource organizations, partially offset by DSI new product sales and an additional month of DSI revenue, with foreign currency negatively impacting revenues by approximately **$1.3 million**[141](index=141&type=chunk)[142](index=142&type=chunk)[144](index=144&type=chunk) - Gross profit margin increased to **55.6%** from **49.1%**, primarily due to the absence of a **$3.7 million** purchase accounting inventory fair value step-up amortization charge in H1 2018[145](index=145&type=chunk) - R&D expenses increased by **6.7%** and intangible asset amortization by **14.0%**, both primarily due to six months of DSI expenses in 2019 versus five months in 2018[148](index=148&type=chunk)[149](index=149&type=chunk) - Other expense, net, decreased by **44.5%** primarily due to **$2.8 million** in DSI acquisition and Denville divestiture transaction costs in H1 2018, partially offset by higher interest expense in 2019[153](index=153&type=chunk) - Income from discontinued operations was **$1.8 million** in H1 2018, including a **$1.3 million** gain on Denville sale and a **$0.9 million** income tax benefit, with no such income in H1 2019[156](index=156&type=chunk) [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) - The Company's liquidity is primarily driven by operating activities, bank borrowings, and stock issuance, supporting acquisitions and capital expenditures[157](index=157&type=chunk) Liquidity and Capital Resources (in thousands) | Metric | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Cash and cash equivalents | $4,934 | $8,173 | | Borrowings outstanding (net of deferred financing costs) | $54,800 | $60,800 | | Total debt, net of cash and cash equivalents | $49,900 | $52,600 | | Underfunded UK pension liability | $900 | $900 | | Cash held by foreign subsidiaries | $2,300 | $3,200 | - Operating activities provided **$2.7 million** in cash for H1 2019, up from **$1.7 million** in H1 2018, primarily due to a decreased net loss[162](index=162&type=chunk) - Investing activities provided **$0.6 million** in H1 2019 (including a **$1.0 million** Denville escrow release), a significant shift from **$52.9 million** used in H1 2018 for DSI acquisition and Denville disposition[163](index=163&type=chunk) - Financing activities used **$6.5 million** in H1 2019 (due to debt repayments including **$4.0 million** excess cash flow and **$1.0 million** Denville escrow payments), contrasting with **$50.7 million** provided in H1 2018 for DSI acquisition debt[164](index=164&type=chunk) [Borrowing Arrangements](index=40&type=section&id=Borrowing%20Arrangements) - The Senior Secured Credit Facilities include a **$64.0 million** term loan and a **$25.0 million** revolving line of credit, maturing in five years, used for the DSI acquisition and working capital[167](index=167&type=chunk) - Term loans are subject to quarterly amortization and annual 'excess cash flow sweep' prepayments; the Company made a **$4.0 million** excess cash flow payment and a **$1.0 million** Denville escrow payment in Q1/Q2 2019[168](index=168&type=chunk) - The facilities are secured by substantially all assets and subject to restrictive covenants; as of June 30, 2019, the Company complied with all covenants and had **$9.5 million** in available borrowing capacity[169](index=169&type=chunk)[171](index=171&type=chunk)[172](index=172&type=chunk) - Interest accrues at a base rate plus **4.75%** or LIBOR plus **6.25%**, with interest rate floors; the weighted effective interest rate on the term loan was **8.85%** as of June 30, 2019[170](index=170&type=chunk)[173](index=173&type=chunk) [Critical Accounting Policies](index=42&type=section&id=Critical%20Accounting%20Policies) - Critical accounting policies remain consistent with those detailed in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2018[176](index=176&type=chunk) [Impact of Foreign Currencies](index=42&type=section&id=Impact%20of%20Foreign%20Currencies) - Foreign currency fluctuations unfavorably impacted revenues by approximately **$0.5 million** for Q2 2019 and **$1.3 million** for H1 2019, while favorably impacting expenses by approximately **$0.3 million** and **$0.8 million** for the respective periods[178](index=178&type=chunk) - The loss from foreign equity translation in comprehensive loss was approximately **$(0.2) million** for Q2 and H1 2019, significantly lower than **$(2.9) million** and **$(1.4) million** in 2018[179](index=179&type=chunk) - Currency exchange rate fluctuations resulted in approximately **$0.1 million** in currency losses for Q2 2019 and **$(0.1) million** for H1 2019, included in net loss[180](index=180&type=chunk) [Recently Issued Accounting Pronouncements](index=42&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) - Refer to Note 2 of the Condensed Consolidated Financial Statements for information on recent accounting pronouncements impacting the business[181](index=181&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=43&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) Discusses the Company's market risk exposure from foreign currency exchange rates and interest rate fluctuations on debt - The Company faces market risk from foreign currency exchange rate changes due to global operations and substantial foreign-denominated revenues and expenses[183](index=183&type=chunk)[184](index=184&type=chunk) - Interest rate risk stems from **$54.8 million** outstanding debt; an interest rate swap hedges **$36.0 million** of this debt, fixing the LIBOR rate at **2.72%**[185](index=185&type=chunk) Estimated Effect of Interest Rate Fluctuations on Interest Expense (in thousands) | Scenario | Interest expense increase | | :--- | :--- | | Interest rates increase by 1% | $246 | | Interest rates increase by 2% | $492 | [Item 4. Controls and Procedures](index=43&type=section&id=Item%204.%20Controls%20and%20Procedures) Confirms effective disclosure controls and procedures, noting ongoing integration of DSI internal controls - Management concluded that disclosure controls and procedures were effective as of June 30, 2019, ensuring reasonable assurance for timely and accurate reporting[188](index=188&type=chunk) - The Company is integrating DSI's business processes and systems, involving ongoing changes to internal controls over financial reporting[189](index=189&type=chunk) [PART II - OTHER INFORMATION](index=44&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) [Item 1A. Risk Factors](index=44&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors from the 2018 Annual Report, except for additional factual information in this report - No material changes to risk factors from the 2018 Annual Report on Form 10-K have occurred, except for additional factual information in this Quarterly Report[191](index=191&type=chunk) [Item 6. Exhibits](index=44&type=section&id=Item%206.%20Exhibits) Lists exhibits filed with Form 10-Q, including CEO and CFO certifications and XBRL-related documents - Exhibits include CEO and CFO certifications (Sarbanes-Oxley Sections 302 and 906) and various XBRL documents[192](index=192&type=chunk) [SIGNATURES](index=45&type=section&id=SIGNATURES) Contains the required signatures for the Form 10-Q, confirming its due authorization and filing - The report was signed on August 8, 2019, by James Green (CEO) and Michael A. Rossi (CFO), as authorized by the registrant[194](index=194&type=chunk)[195](index=195&type=chunk)
Harvard Bioscience(HBIO) - 2018 Q4 - Annual Report
2019-03-18 20:21
Financial Performance - Revenues for the fiscal year ended December 31, 2018, were $120.774 million, an increase from $77.407 million in 2017, representing a growth of approximately 55.8%[138] - Revenues for the year ended December 31, 2018, were $120.8 million, an increase of 56.0%, or $43.4 million, compared to $77.4 million for the same period in 2017[152] - The increase in revenues included approximately $42.6 million from the acquisition of DSI and a positive impact of $1.3 million from currency translation[153] - Cost of revenues for 2018 was $57.593 million, accounting for 47.7% of total revenues, compared to 49.4% in 2017[138] - Cost of revenues increased by $19.4 million, or 50.6%, to $57.6 million for the year ended December 31, 2018, primarily due to the acquisition of DSI[155] - Gross profit margin as a percentage of revenues increased to 52.3% for the year ended December 31, 2018, compared to 50.6% for 2017[155] - Research and development expenses increased to $10.988 million in 2018, representing 9.1% of revenues, up from 7.3% in 2017[138] - Research and development expenses were $11.0 million for the year ended December 31, 2018, an increase of $5.4 million, or 94.7%, compared to $5.6 million for 2017[158] - For the year ended December 31, 2018, the company reported a net loss of $2.9 million, compared to a net loss of $0.9 million in 2017[169] Acquisitions and Divestitures - Harvard Bioscience, Inc. has completed five acquisitions since Q4 2014, including the acquisition of Data Sciences International, Inc. for approximately $71.1 million in January 2018[15] - The company sold substantially all assets of Denville Scientific, Inc. for approximately $20.0 million in Q1 2018, which included a $3.0 million earn-out provision[16] - The company acquired Data Sciences International, Inc. for approximately $71.1 million, diversifying its customer base and increasing gross profit margins[135] - The company sold the operations of Denville for approximately $20.0 million on January 22, 2018, which included a $3.0 million earn-out provision[163] Research and Development - Harvard Bioscience, Inc. generated approximately $11.0 million in research and development expenses for the year ended December 31, 2018, compared to $5.6 million in 2017, indicating a significant investment in innovation[35] - The company aims to continue pursuing a balanced development portfolio strategy, focusing on both internal research and strategic acquisitions[35] - The company is investing in new product development, but the speed of technological change may hinder the recovery of development costs[87] Sales and Revenue Sources - The company's PCMI product family accounted for approximately 47.3% of global revenues for the year ended December 31, 2018[24] - The DSI product family contributed approximately 35.2% to global revenues for the year ended December 31, 2018[26] - The Electrophysiology product family represented approximately 17.5% of global revenues for the year ended December 31, 2018[29] - Direct sales to end-users made up approximately 59% of total revenues for the year ended December 31, 2018, while distributor sales accounted for about 41%[32] Financial Position and Debt - The company had borrowings of $62.4 million under a Financing Agreement as of December 31, 2018, with financial covenants relating to leverage and fixed charges[65] - The company’s ability to make scheduled payments on its debt depends on its financial and operating performance, which may be adversely affected by various factors beyond its control[68] - The company has a significant unused borrowing capacity, but any failure to comply with financial covenants could negatively impact its financial condition[67] - As of December 31, 2018, total debt, net of cash and cash equivalents, was $52.6 million, compared to $6.5 million at December 31, 2017[166] - The company expects its available cash, cash generated from operations, and debt capacity to be sufficient to finance operations for the next 12 months[184] Market and Economic Conditions - The company derives a significant portion of its revenues from pharmaceutical and biotechnology companies, which are subject to risks such as government regulation and reductions in research and development expenditures[69] - The company’s financial performance is dependent on the prevailing economic conditions and the financial health of its customers, particularly in the pharmaceutical and biotechnology sectors[70] - The company faces risks related to foreign investment regulations and economic conditions in China, which may impact its expansion efforts[75] - Recent U.S. tax reforms reduced the corporate tax rate from 35% to 21%, which could adversely affect future operations[77] Operational Risks - The company faces risks related to customer uncertainty following acquisitions, which could delay purchasing decisions and affect business performance[71] - The company is exposed to product liability claims, which could result in substantial financial liability if insurance coverage is inadequate[107] - The company may be involved in costly and time-consuming lawsuits to protect its patents, which could divert resources from normal operations[108] - Information technology infrastructure failures could adversely affect day-to-day operations and decision-making processes[90] Workforce and Employment - As of December 31, 2018, the company employed 547 employees, an increase from 434 employees in 2017, primarily due to the acquisition of Data Sciences International, Inc. (DSI) in 2018[51] - The company’s workforce is geographically distributed, with 346 employees in the United States and 201 employees in other countries as of December 31, 2018[53] - The company may face challenges in retaining key personnel, which is critical for achieving product development and growth strategies[104] Regulatory and Compliance Issues - The company is not subject to direct governmental regulation for its current products, which are not required to undergo pre-market approval by the FDA[50] - The company is subject to new U.S. foreign investment regulations that may limit certain investors' ability to purchase its common stock, potentially affecting stock attractiveness[119] - The implementation of GDPR may increase business costs and impose severe penalties, which could materially harm the company's operations and reputation[118] Competitive Landscape - Increased competition in the life sciences industry from both established and new companies poses a challenge to the company's market position[85] - Rapid technological changes in the industry necessitate continuous product development to remain competitive[86] - The company faces challenges in acquiring other businesses due to competition and potential financing limitations, which could hinder growth[94] Asset Management - The company has goodwill and intangible assets totaling $103.1 million, representing 61% of total assets, with no impairment reported[102] - The estimated fair value of the business significantly exceeded its carrying value, indicating no impairment of goodwill[198] - The fair value of unamortized intangible assets also significantly exceeded their carrying amounts[198] Cash Flow and Investments - Cash provided by operating activities increased to $2.9 million in 2018 from $1.1 million in 2017, despite a decrease in net cash flow due to increased net loss and changes in working capital[171] - Investing activities used cash of $53.8 million in 2018, primarily due to a $68.5 million acquisition of DSI, while only $0.9 million was used in 2017[172] - Financing activities provided cash of $53.1 million in 2018, a significant increase from cash used in financing activities of $1.8 million in 2017[173] Stock and Shareholder Issues - The company has a staggered board of directors, making it difficult for stockholders to change management, which may limit share price appreciation[113] - The company’s stock price has experienced significant fluctuations, influenced by various market factors and operational performance[98] - The company does not anticipate paying cash dividends in the near future, focusing instead on retaining earnings for business expansion[117] Future Outlook - The company anticipates that its financial resources will be sufficient to finance operations and capital expenditures for at least the next twelve months[96] - The company is expanding its business into foreign markets, but success is uncertain and may require significant resources[84]